Monday, March 19, 2007

Your Questions Get Dealt With: What's Up With Recording Contracts?

In a nod to the rare occasion where a band, label, or curious web browsing fan ask about issues involved in recording contracts, here is a quick list of common things to look for in standard recording contracts (the often glossed-over but very important ones first):

1) Indemnification - If you are an artist who uses samples of other songs in your work (particularly in hip-hop or electronica), or a label who signs such artists, there generally will be/should be a clause in which the artist agrees to indemnify the record company from third-party claims that any tracks produced under the contract violate the rights of those third parties. Indemnification, basically, is the agreement to protect the other party to the contract from financial loss by taking financial responsibility for any liability issues that might arise. Liability is not being passed off, but the cost of that liability.

What this means for artists is, if you sample, clear the samples before submitting masters. Otherwise, you are on the hook if P-Funk comes down on you for ripping off even the most infinitesimal portion of a song (maybe we'll cover sampling in another post). Labels, if you've signed an artist and have such an indemnification provision, you still might be on the hook if your artist cannot financially uphold the agreement to indemnify. You might consider requiring proof that all samples are cleared before accepting masters.

2) Arbitration - More and more, contracts are devised to avoid expensive litigation from the get-go by language binding the parties to arbitration (also known as alternative dispute resolution). Arbitration provisions allow both sides to avoid judges and juries altogether by agreeing to have a private arbitrator handle any disputes that can't be handled like civil women and men. To learn more about arbitration, visit the American Arbitration Association. Ironically, arbitration is getting more and more expensive, too. However, it still tends to move much faster than filing suit in court.

3) Attorney's Fees - Lawyers are expensive (unless they are taking your case free, or as legal heads call it, pro bono). In general, the law does not by default allow the winning party to receive their legal fees from the other side. A clause that provides that the prevailing party is entitled to attorney's fees from the unsuccessful party (a nice way of saying winner and loser) is much more likely to allow attorney's fees to be recovered. Whether you are the artist or the label, this language might prevent litigation altogether, because it is more likely to quell frivolous or iffy claims where a party is afraid they may lose.

4) Joint and Several Liability - Labels want bands to sign the contract "jointly and severally", meaning that instead of the band signing the contract, each member is signing as an individual party to the contract with the label. So artists, if your band breaks up, each of you is on the hook for following through on the agreement. If one of you wants to take off to start a zydeco project, the label is coming with you.

Moving to the more commonly asked-about (and equally important) issues:

5) Exclusivity - This is pretty easy. Artists, labels tend to require that you make records for that label only. Sure, you might make a guest appearance on a record by another label's artist, but your label will get credited as giving permission for that, and probably get a chunk of change in the form of a royalty, too. This is a provision that binds up artistic freedom, but you might see it as a necessary evil (unless you're following the Music 2.0 model either as a self-publishing artist or have a really hip label). Labels, you might lose some artists over this, but it's a business call. Do you want to pump money into creating an album just for an artist to go flocking to another label at his/her/their leisure?

6) Copyright - Quick and dirty, as this subject is cumbersome in its own right. Copyrights come in two forms: (a) the musical composition (the song itself), and (b) the sound recording (the recorded track). Artists, you (or your publishing company) will customarily keep the rights to the composition. Labels, you generally take the sound recording. This gives the label the right to manufacture, distribute, and sell records of the recording, and to license the recording. Take a wild guess where the real potential for profit is: the composition or the recording? Hint: The sound recording is on the CD.

7) Money - Financing recordings is another complex area. Basically, the label is the bank, fronting the money for the record. The label recoups from the artists' sales. Artists, you receive a royalty for sales (another complex area). Labels, you get the rest of the sales.

8) Touring - Very important for indies, but a very different issue from deal to deal. Chances are, if you are an indie, you're going to be on your own here concerning funds.

9) Promotion - Artists are likely to be bound to promote their record (why wouldn't you? Maybe because you hate your label and have just created a pile of crap for an album). But you're trying to get a contract, not get out, right?

So these are common things that come up in contracts. Look for them, and think about what you want to agree to and what you don't. This goes for artists and labels alike. You both have bargaining power, because you both have things to offer that the other wants. Be reasonable, but be firm. And don't be afraid to walk away if you are not feeling good about the other side or the terms of the deal.

NOTE/DISCLAIMER: It is important to note that devising and interpreting these provisions is not for indie DIY types. You should consult with your attorney before, not after, you negotiate and sign a contract. This post is not legal advice, and before proceeding, you should read Any Given Tuesday's legal disclaimer here. This information is general in nature, not legal advice and not warranted or guaranteed. Readers are strongly advised not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.

All that being said, let us know if you find this information interesting, and what other topics you are curious about.

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